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The unexpected cost of Black Friday success

Many electronics retailers are counting the success of Black Friday 2015, but their victory could be short-lived. The event is set to cost the industry £160 million in returned goods, and it could hurt electrical sales more than other sectors. Jo Swinson, non-executive director at retail intelligence specialist Clear Returns explains how

Few can have failed to notice the post-Black Friday euphoria among consumer electronics retailers. Currys PC World reported sales of eight products every second – including 30 large-screen TVs per minute, leading Dixons Carphone to boast its biggest ever single day’s trade.

However, what retailers won’t tell you is the impact of customers bringing goods back. Black Friday remorse is so great that it has led to the coining of the term ‘Red Saturday’, where shoppers are so embarrassed about their spending that they return many of their purchases.

Black Friday returns are set to cost the sector around £160 million and this year’s shift from in-store to online sales could make the problem even worse. Electronics retailers are among those that will experience the greatest squeeze on their margins.

Under the Consumer Contracts Regulations, any consumers buying goods online have a 14-day cooling-off period during which they’re entitled to send products back, even if they are not faulty. This contributes to 14 per cent of all consumer electronics items purchased online being returned.

For Black Friday purchases, this two-week returns window will see goods arriving back with retailers right in the middle of December – the busiest sales period of the year when shoppers are buying Christmas gifts.

This immediately puts electronics retailers on the back foot, as they have a surge in returned stock to deal with. And unlike most other sectors, electrical goods must be tested before they can be resold, which adds even more time to the turnaround process. However, at this point in December, business infrastructure is understandably focused on getting goods out rather than dealing with goods that have been sent back.

This results in a phenomenon known as the ‘returns loop’. Unwanted items have been received by the retailer, but are not available to shoppers who want to buy them. Clear Returns is warning that the volume of stock caught up in the returns loop will peak on December 12, leading to many electrical retailers experiencing ‘Out-of-Stock Saturday’ – at a critical time for retailers.

For the consumer electronics industry, getting returned goods turned around and ready for resale is only part of the challenge. Even if an item is tested and passes, if its packaging has been damaged, it cannot be sold as new. So what may have been sold at a discounted margin on Black Friday is now on sale again for even less.

Of course, it’s a shopper’s right to return an item bought online – something I wholeheartedly support. I designed the Consumer Rights Act, which came into force in October, to ensure consumers feel confident in their shopping decisions. Returns rights are an important part of that, encouraging consumers to experiment with new brands or product types, and boosting competition.

However, there’s no doubt that returns can be costly for retailers, so it’s worth looking at how to reduce the number of items being sent back, particularly at this time of year, when a Black Friday backlash can cut into Christmas profits.

Rather than simply creating an efficient returns process, electronics retailers should be looking for a strategy that helps them to reduce the volume of unwanted goods sent back in the first place.

Alongside the positive ‘brand experimentation’ reason for returns, there are more destructive drivers: avoidable issues such as product faults, poor instructions and bad customer service inflate returns rates to unnecessary levels.

Investing in intelligent analytics can identify these drivers, so retailers can take action before the problem escalates into a serious profit-sapping returns issue. This means customers keeping more of what they buy and electronics retailers keeping more of their margin.